
Contents
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1 Introduction 1 Introduction
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2 Money Targeting Frameworks in Sub-Saharan Africa 2 Money Targeting Frameworks in Sub-Saharan Africa
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3 Introducing Money Targeting in a New Keynesian Model for Kenya 3 Introducing Money Targeting in a New Keynesian Model for Kenya
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3.1 Money Demand 3.1 Money Demand
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3.2 Monetary Policy 3.2 Monetary Policy
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3.2.1 Interest Rate Rule 3.2.1 Interest Rate Rule
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3.2.2 Money Growth Target 3.2.2 Money Growth Target
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3.2.3 Intermediate Cases 3.2.3 Intermediate Cases
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3.3 Key Features and Properties of the Model 3.3 Key Features and Properties of the Model
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4 Empirical Application—The Kenyan Economy 4 Empirical Application—The Kenyan Economy
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4.1 The Monetary Policy Regime in Kenya—A Brief Review With a Focus on Money 4.1 The Monetary Policy Regime in Kenya—A Brief Review With a Focus on Money
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4.2 Money Demand in Kenya 4.2 Money Demand in Kenya
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4.3 Money Targets 4.3 Money Targets
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4.4 Do Money Targets Matter for Monetary Policy in Kenya? 4.4 Do Money Targets Matter for Monetary Policy in Kenya?
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4.5 A Macroeconomic Decomposition of Money Targets and Monetary Policy in Kenya 4.5 A Macroeconomic Decomposition of Money Targets and Monetary Policy in Kenya
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5 Conclusions 5 Conclusions
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References References
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16 Do Money Targets Matter for Monetary Policy in Kenya?
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Published:March 2018
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Abstract
The framework in Chapter 15 is extended to incorporate an explicit role for money aggregates, with an application to Kenya. The chapter provides a general specification that can nest various types of money targeting (ranging from targets based on optimal money demand forecasts to those derived from simple money growth rules), interest-rate based frameworks, and intermediate cases. A novel interpretation of target misses in terms of structural shocks (aggregate demand, policy, shocks to money demand, etc.) is presented. In the case of Kenya, the authors find that: (i) the setting of money targets is consistent with money demand forecasting, (ii) targets have not played a systematic role in monetary policy, and (iii) target misses mainly reflect shocks to money demand. Simulations of the model under alternative policy specifications show that the stronger the ex post target adherence, the greater the macroeconomic volatility.
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